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• The Centre has introduced a temporary compensation mechanism to offset the impact of rising fuel, material and logistics costs on National Highway projects.
• EPC and HAM contractors will receive faster and more frequent payments to improve cash flow and project execution.
• Price adjustment calculations will be linked to more recent market data, allowing compensation to better reflect prevailing costs.
• The measures aim to prevent project disruptions, support developers and maintain momentum in India's highway infrastructure programme.
The Government of India has announced a special compensation and payment framework for National Highway projects to address the financial strain caused by rising input costs in the global economy. The initiative is designed to support highway developers, contractors and concessionaires facing increased expenses related to fuel, construction materials and logistics while ensuring that ongoing infrastructure projects remain on schedule.
According to the Ministry of Road Transport and Highways, the measures will remain in force from April 1 to June 30, 2026, subject to further review depending on economic conditions. The decision comes amid persistent volatility in commodity prices and supply-chain costs that have affected infrastructure projects across multiple sectors.
One of the key changes relates to payment mechanisms under Engineering, Procurement and Construction (EPC) projects and Hybrid Annuity Model (HAM) projects. The government has eased existing provisions to facilitate monthly payments for completed work that meets prescribed quality and technical standards. The move is expected to improve liquidity for developers and contractors by reducing delays in reimbursement and helping them manage working capital requirements more efficiently.
The government has also revised the methodology used for price adjustment under EPC contracts. Previously, compensation calculations were based on commodity price indices from three months before the relevant payment period. Under the revised framework, the reference period has been shortened to one month prior to the Interim Payment Certificate month. Officials believe this change will allow compensation to more accurately reflect current market conditions and provide timely relief to contractors affected by cost escalation.
The updated formula applies to key construction inputs including cement, steel, machinery and other materials commonly used in highway development. Similar revisions have also been introduced for bitumen pricing calculations, with compensation now linked to more recent market rates. These adjustments are intended to reduce the gap between actual project costs and reimbursable expenses.
Another significant provision allows price adjustment payments to be released alongside regular monthly payments under EPC contracts. For HAM projects, cost escalation payments determined through the applicable pricing mechanism can also be disbursed every month. This is expected to strengthen cash flows and reduce financial pressure on companies executing large-scale road projects.
The announcement reflects the government's broader objective of sustaining momentum in infrastructure development despite global economic challenges. National Highway construction remains a central component of India's infrastructure strategy, and policymakers have increasingly focused on ensuring that developers have the financial stability needed to complete projects on time.
Industry participants are likely to view the measures as a timely intervention, particularly at a time when fluctuating commodity prices continue to affect project economics. By providing targeted relief and improving payment mechanisms, the government aims to minimise disruptions and maintain progress on critical highway infrastructure projects across the country.
Source- PIB
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